Report: BB&T to buy Colonial branches, deposits

CHARLOTTE, N.C. 
Shares of BB&T Corp. rallied Friday on reports it will buy deposits and branches of Colonial BancGroup Inc. in a deal backed by federal regulators to take the struggling lender into receivership.

The deal was approved by the Federal Deposit Insurance Corp. on Thursday night and is expected to be announced later on Friday, The Wall Street Journal reported.

"The market is treating it as it was a foregone conclusion here," said Sandler O'Neill & Partners analyst Kevin Fitzsimmons.

"This is all about survival, and BB&T has been very vocal about wanting to take over another institution," Friedman, Billings, Ramsey & Co. analyst Paul Miller. "BBT is trading up on the news as they would likely be able to assume the deposits at an attractive price."

BB&T and Colonial officials did not respond to repeated calls from The Associated Press seeking confirmation. FDIC spokesman David Barr in Washington declined to comment.

Colonial, based in Montgomery, Ala., operates 355 branches in Florida, Alabama, Georgia, Nevada and Texas and has more than $25 billion in assets.

Winston-Salem, N.C.-based BB&T ended June with $152.4 billion of assets. It operates 1,505 branches in 11 states and Washington, D.C.

Colonial's failure would be the largest bank failure this year.

The battered bank has been hurt by the credit crisis, as rising foreclosures in its Florida construction-loan portfolio continue to strain its balance sheet.

On Tuesday, Colonial said it has advised the Securities and Exchange Commission it will not be able to file a second-quarter financial report because of alleged accounting irregularities now being investigated.

The Alabama Banking Department also confirmed Tuesday that its board held a private meeting with Colonial officials on Monday.

Colonial said last week it was under a criminal investigation by the Justice Department over the alleged accounting irregularities at its mortgage warehouse lending unit in Orlando, Fla. It was announced earlier that Colonial was the subject of a Securities and Exchange Commission investigation related to its bid for federal bailout funds and its accounting for loan loss reserves.

On Thursday, a federal court froze $1 billion of Colonial's assets in response to a suit filed by Bank of America Corp.

Charlotte, N.C.-based Bank of America sued Colonial as means to protect its claim on Colonial loans, because it feared Colonial's future was in question.

BB&T is among the nation's stronger regional banks.

It was among the 19 banks on which the Federal Reserve performed a stress test, and, unlike some of its competitors, didn't have to raise additional equity capital.

BB&T did receive money from the Treasury Department's Trouble Asset Relief Program last year, but in June the bank paid the $3.1 billion back to the government.

"It makes sense that some of these weaker regionals ends up under (BB&T's) umbrella," FBR's Miller said.